Research and analysis

Modelling myopic responses to policy: an enhancement to the NIBAX model (WP88)

Although the view that at least some people are myopic …



Working Paper No. 88

By Justin van de Ven and Martin Weale

Although the view that at least some people are myopic has featured in contemporary policy debate, little is currently understood about the practical implications of shortsightedness in a realistic policy setting.

This report publishes the results of work conducted by the National Institute of Economic and Social Research (NIESR) to help meet the information gap. The report describes analytical routines that were developed to explore the influence of myopia on savings and labour supply decisions, and which have been supplied to civil servants within DWP and HM Revenue and Customs.

Illustrative simulations produced by the analytical routines indicate that myopia can have very profound - and sometimes surprising - behavioural implications. The simulations suggest that myopia will tend to reduce labour supply early in life, increase the use of unsecured credit, and depress aggregate savings. We also find that myopia tends to increase the age of retirement, as individuals attempt to make up for some of their savings short-fall. The simulations also suggest that allowing people to invest in pensions tends to mitigate the behavioural effects of myopia.